nirc-icsi september 10, 2011 atul mittal director pvt. ltd. · memorandum of understanding purpose...

JOINT VENTURE AGREEMENTS

&NEGOTIATIONS

NIRC-ICSISeptember 10, 2011

Atul MittalDirector

Deloitte Touche Tohmatsu India Pvt. Ltd.

Meaning….

A strategic alliance between two or more companies, individuals, or organisations

Ownership of business shared by participants

Operations based in different countries / spread over different countries.

Why Establish a Joint Venture ?

Creation of a new market

Foreign Investment opportunities

Requirement of funds for large projects

Enormous start-up costs and project risks

Memorandum of UnderstandingPurpose

Basis for an agreed text for public announcementStarting point for initial approaches to regulatory bodiesFulfilment of regulatory obligations in other jurisdictionsExecutive / reference summary of JVA’sSet out core principles with an understanding of the commitment of parties

Legal StatusNot legally binding on the partiesNot executed in sufficiently precise terms Confidentiality provisions, dispute resolution etc. should be binding

Memorandum of UnderstandingContents

• Business objective of the joint venture;Applicable laws and other regulatory requirements;Structure of the joint venture;The respective shares of the parties in the joint venture;Initial investment by the parties;Management matters, provisions regarding the board and the mechanics of voting;The parties’ commitments to provide the joint venture with know-how and technology;Procedure on termination of the joint venture;The timetable for the implementation of the joint venture; andAny conditions precedent.

Due DiligenceNature

Form of investigation prior to executing legally binding documentsInvestigations covering financial, legal and other business aspects Warranties and indemnitiesDisclosure letters

PurposePrevention of nasty surprisesAnswers questions relating to solvency and ownership of JV partnerIn-depth examination of the pre-contractual stageCovers all necessary information and details of important contracts

Legal Structure

Joint Venture Companies

Limited liability

Most popular JV vehicle

Company and not shareholders exposed to risks

Factors Governing Legal Structure

Corporate veil

Third party liabilities

Partnership liability inter se

Taxation implications

Management implications

Accounting implications

Transaction Documents

Master Agreement

Shareholders AgreementArticles of Association

Related AgreementsEmployment Distribution/MarketingManufacturing/SupplyEmployment Technology Transfer

Contents of a ‘JVA’….Name of the Joint VentureCapital StructureConditions Precedent Shareholding PatternScope and Territory of Operations Role of Shareholders and BoardOperation and Internal RelationshipsManaging Director/CEOs Role etc.Reserve MattersGeneral Meetings and Board MeetingsTransfer of Shares i.e. ROFR etc.Dividend Policy Accounts, Audit and Auditors

Contents of a JVA

Exclusivity and Non-CompeteOverriding Effect of the JVAForce MajeureWaiverAssignmentSecrecy and ConfidentialityBreach of AgreementTerm of AgreementNoticesGoverning LawDispute ResolutionOthers

.

ATUL MITTAL

Director

Tax & Regulatory Services

Deloitte

email: atulmittal@deloitte.com

Tel: +91 (124) 46792828,

Mobile: +91 9810065744